Thinking of incorporating your business? Learn how to convert a sole trader, partnership or LLP into a limited company, including tax, TUPE and legal steps.

How to Convert from a Sole Trader, Partnership or Limited Liability Partnership (“LLP”) into a Limited Company

Andrew Haimdas March 20, 2026

As a business develops and grows, it is often advised to transfer the business to a limited company. Converting a sole trade, partnership or LLP into a limited company is not only about registering a new company, but also making sure the business moves across properly and in its entirety (including the contracts, assets, intellectual property (“IP”), staff and liabilities).

Why convert into a limited company

Founders and partners usually incorporate a limited company because they want one or more of the following:

limited liability (personal risk is reduced compared to a sole trade/partnership/LLP);
a structure that is easier for providing employee share options and raising future fundraising;
better exit planning;
increased credibility with customers and suppliers; and
clearer separation of business and personal finances.

That said, incorporation is not always right for every business at every stage, particularly from a tax/accounting point of view, so it is worth speaking to an accountant before any real steps are taken to transfer the business to a limited company.

Step-by-step: how the process usually works

Step 1 – Decide who will own the new company (and in what percentages)

Before you do anything else, decide:

who will be shareholders of the new company (“NewCo”);
share percentages to be allotted to each of the proposed shareholders; and
whether you need more than one share class.

If there are multiple founders, then it may be worthwhile to consider whether a shareholders’ agreement would be required. This is recommended to be executed prior to incorporation and the individuals becoming legal owners of the shares.

Step 2 – Incorporate the NewCo

Incorporate the NewCo at Companies House, appoint directors, and issue subscription shares to the intended owners. Subscription shares are the first shares issued when a company is incorporated and are allotted to the initial shareholders (i.e., the founder(s)) to establish the company’s initial share capital and share splits between founders.

Step 3 – Transfer the business to the NewCo

It is important to note that the NewCo will not automatically own the business. You need to document the transfer of:

assets (physical and intangible);
contracts and customer relationships;
IP (website, brand, code, content);
goodwill; and
(often) employees and operational arrangements.

Transfer of assets and goodwill

The usual approach is an asset purchase agreement.

What gets transferred?

Typically, the following is transferred:

goodwill;
business name / trading name;
equipment, stock, and tools;
domain names and websites;
phone numbers and social accounts;
customer lists; and
work in progress and business records.

What does not transfer automatically?

Liabilities do not always cleanly move across, and third parties may still have a claim against the old entity unless the paperwork is done properly.

This matters particularly where there are:

customer contracts;
leases;
finance agreements;
supplier agreements; and
ongoing obligations.

Transfer your contracts

Contracts do not automatically transfer to a NewCo. Usually, you need one of the following:

novation agreements – a three-party agreement where the customer/supplier formally agrees that the NewCo replaces the old entity;
assignment – an assignment can sometimes work for certain rights, but not always for obligations and many contracts restrict it; or
enter into new contracts – sometimes the simplest route is to sign fresh agreements in the NewCo’s name.

If key contracts are still in the name of the old entity, it can create payment confusion and liability risk, as well as affect a future exit from the NewCo.

Transfer of IP

IP can be included in an asset purchase agreement or through a standalone IP assignment to be absolutely clear on the intended IP to be transferred.

IP often includes:

website text and content;
branding, logos and designs;
domain name(s);
software, code or product assets;
marketing materials, proposals, templates; and
training materials, deck designs, documents, and other content.

The proper transfer of IP ensures that the NewCo is not infringing on the rights of the old entity and significantly reduces the possibility of disputes being raised in the future.

Moreover, investors often seek to confirm whether the IP is owned by the relevant entity using it. If the answer is unclear, it becomes a red flag which could affect whether the NewCo will be able to raise investment.

Employees and TUPE (if applicable)

If you have employees, incorporation may trigger a transfer of undertakings (“TUPE”), which means employees may automatically move to the NewCo (on existing terms with the old entity) and there may be information and consultation obligations.

This can be straightforward or complicated depending on the size and structure of the team.

Close down (or leave dormant) the old structure

Once the NewCo is running properly, it is common to:

move banking and payment systems;
update insurance policies;
notify suppliers and customers;
deal with VAT and PAYE registrations; and
wind down the old entity (or keep it dormant temporarily while novations complete).

It is common to keep LLPs running for a short period until everything is fully transferred.

LLPs: anything different?

Converting an LLP into a limited company is usually not a “conversion” in the technical sense. Where the owners are the same before and after the transfer, HMRC will often view the move from an LLP to a company as a business reorganisation rather than a straightforward asset sale. That can be helpful, but it does not remove the need to properly document what is transferring and what is not (particularly goodwill/IP, contracts, employees and any property interests). It is usually worth agreeing the intended structure with your accountant early, and ensuring the legal documents reflect it.

The process is broadly the same, but in practice LLP conversions often involve:

checking the LLP agreement for member approval requirements;
deciding what happens to the LLP’s liabilities;
documenting the transfer from the LLP to the NewCo clearly;
ensuring the LLP does not keep accidental ongoing obligations; and
tying up final LLP accounts and closure steps with your accountant.

Choosing the Structure

There are a few different ways to set up a new company depending on how you want to run the business going forward. You can either:

transfer the whole business from the LLP to the company (most common) so that the company becomes the trading entity and the LLP becomes dormant or is later closed; or
keep the LLP and transfer only some assets (sometimes the LLP is retained to hold property or IP) and the company trades under a licence or service arrangements (this can create extra tax and admin complexity); or
use an “incorporation relief” structure as in some cases, it may be possible to structure the transfer so that capital gains tax is deferred.

The right approach affects tax reliefs, VAT treatment, stamp duty (especially if property is involved), and future exit planning so it is worth agreeing the structure with your accountant early.

Practical Considerations

Even after transferring the business, the LLP may still have historic liabilities that could arise later (for example, under old contracts or professional work carried out before the transfer). In many cases, the LLP is kept open for a period (or put into a dormant “run-off” mode) while contracts are novated and any remaining risks are managed. It may also be necessary to consider run-off / tail insurance depending on the industry.

If the LLP operates in a regulated sector (for example, FCA/SRA or other professional body oversight), the NewCo may need fresh authorisation or advance approval, and there may be professional indemnity or run-off insurance requirements for the LLP.

Tax Considerations

Incorporation relief

An accountant will be able to advise on whether this is available as it depends on:

the business being a transfer of a going concern (“TOGC”);
the transfer of all of the existing business’ assets (other than cash); and
the sellers of the existing business receiving shares in the NewCo as part of the consideration.

If incorporation relief applies, it generally means any gain on the transferred assets is deferred and effectively “rolls into” the base cost of the shares in the new company (so tax is usually only crystallised when the shares are sold). In practice, one of the key points is that the shares are typically issued to the owners in broadly the same proportions as their interests in the LLP/old business.

Stamp Duty and Stamp Duty Land Tax (“SDLT”)

Transfers of non-property assets (such as contracts, goodwill, stock and equipment) do not usually attract stamp duty. However, where the existing business owns (or has interests in) property, SDLT can arise and the rules can be complex even where the underlying owners are the same (particularly for LLPs and partnerships).

Goodwill

Goodwill is often the most sensitive asset in business transfers. HMRC may challenge goodwill values if they appear inflated, so it is sensible to have a defensible valuation.

It is also worth noting that the corporation tax treatment of goodwill can be complex in some incorporation scenarios, so it is sensible to seek advice from an accountant before settling on a value. If goodwill or IP is left in the LLP and licensed to the company instead of being transferred, that can create additional ongoing tax and practical complexity.

TOGC

If the existing business is VAT registered, the transfer can often be structured as a TOGC, meaning VAT is not charged on the transfer. This usually depends on the company continuing the same business activity and being VAT registered (or registering promptly).

If the TOGC conditions are not met, VAT can potentially become chargeable on the transfer of assets (and in some cases goodwill), so it is worth confirming VAT treatment with your accountant early.

How we can help

We can manage the incorporation and business transfer end-to-end, including:

incorporating a NewCo and issuing shares;
drafting board minutes and resolutions to support the business transfer;
preparing the asset purchase agreement, IP assignment and asset schedules; and
preparing novation/assignment agreements for key contracts.

Please email wewillhelp@jonathanlea.net or call us on 01444 708640 as a first step. Following an initial discussion, we can provide a clear scope of work, a fee estimate (or fixed fee where appropriate), and confirm any information or documentation we would need to review.

FAQs: How to Convert to a Limited Company

1) Can I Leave My Old LLP or Partnership "On Ice" After Transferring the Business, and Are There Any Risks?

Yes, many owners keep an LLP or partnership in a dormant or “run-off” state while contracts are novated and residual liabilities are managed. However, doing so can carry:

ongoing Companies House and HMRC filing obligations (annual confirmations, dormancy declarations, tax returns);
potential director and member liabilities if obligations are not met;
regulatory and professional indemnity requirements (if applicable to your sector);
cost of dormancy management and accounting; and
bank account and insurance policy maintenance.

2) What Happens If I Accidentally Leave Key Intellectual Property in the Old Entity Instead of Transferring It to the Company?

If core IP (such as brand, software, domain names or key content) remains legally owned by the old business, the NewCo may be using it under an implied or informal licence. This can create serious problems:

For investors: IP ownership becomes a “due diligence red flag” and may prevent investment;
For buyers: acquiring the company becomes complicated and risky if key IP is not owned by it;
For licensors: if the old business licensed the IP from third parties, the NewCo may not have the right to continue using it without fresh licensing agreements;
For dispute resolution: informal arrangements are vulnerable to challenge and can lead to costly disputes.

3) Can the Same Person Be Both a Director and an Employee of the NewCo After Incorporation, and Does That Change TUPE Analysis?

Yes, it is entirely possible (and common) for an individual to be both a director and an employee of the company. Whether an individual’s employment transfers under TUPE is a separate question and depends on:

whether they are genuinely an employee (not just a member/owner);
whether they form part of the “organised grouping of resources” being transferred;
whether they are directly or mainly assigned to the business being transferred; and
the specific facts and contractual arrangements.

This is a factual, case-by-case assessment and cannot be determined in advance without specialist advice.

4) Is It Ever Sensible to Keep Goodwill in the LLP and License It to the Company Instead of Transferring It Outright?

In some specific structures, goodwill or IP is retained and licensed rather than sold, often to manage tax risks or commercial concerns. However, this approach tends to:

increase tax complexity and ongoing compliance requirements;
attract close HMRC scrutiny (particularly where property or anti-avoidance considerations apply);
complicate future exit planning (buyers may be concerned about licence dependency);
create operational friction if the licence terms need to change; and
generate unnecessary ongoing costs.

* VAT is charged at 20%

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.